UPDATE 2-Reckitt Benckiser trims sales forecasts after cyber attack

Martinne Geller and Paul Sandle

Published 5:21 AM ET Thu, 6 July 2017
Reuters

SHARES

(Adds analyst comment, details on impact, shares)

LONDON, July 6 (Reuters) - British consumer goods maker Reckitt Benckiser trimmed its sales forecasts on Thursday, becoming one of the first companies to put a cost on a global cyber attack that disrupted its manufacturing and distribution.

Several major multinational companies, along with Russia's biggest oil firm and Ukrainian banks, were hit by a virus on June 27 that crippled computers, disrupting ports from Mumbai to Los Angeles and halting production at factories.

Reckitt Benckiser, which makes Dettol and Lysol disinfectants, Harpic cleaners and Durex condoms, said it estimated like-for-like revenue in the second quarter would fall 2 percent from a year earlier because of the attack.

The virus hit output at many of the company's more than 60 factories, as well as affecting orders, billing and shipping. Excluding that impact, and tax changes in India that hurt sales to a lesser extent, second-quarter sales would have been flat, the company said.

Reckitt's shares fell as much as 3.2 percent on Thursday to their lowest since May 19. The shares were 1.4 percent lower at 0858 GMT.

The cyber blindside came at a bad time for Reckitt Benckiser after its weakest performance in 15 years in the first quarter, when a collapse of its business in South Korea and a failed Scholl product innovation left sales unchanged..

Reckitt Benckiser has described 2017 as a "tale of two halves," saying the second half would improve as comparisons with the same period a year earlier get easier.

But it said on Thursday that like-for-like annual sales would now only increase 2 percent, instead of 3 percent.

Liberum analysts said Reckitt needs 5 percent sales growth in the second half to hit that target and that "may still prove ambitious in light of lingering effects from the cyber attack, Indian tax and competitive end markets."

PRODUCTION LOSSES

Following years of strong performances, Reckitt has a reputation for acquiring businesses and boosting sales by launching new products. But several sluggish quarters and its acquisition of baby formula maker Mead Johnson have raised questions about its strategy.

"We remain negative on the acquisition of Mead Johnson from a strategic, operational and financial point of view whereas organically we see signs of innovation fatigue meaning that there isn't anything obvious to offset the slowdown of the failed Scholl Express Pedi innovation," said analysts at RBC, affirming their "Underperform" rating.

Prior to the takeover deal, which closed last month, Mead Johnson's shares had fallen by a third over the past two years, as it has lost market share in China due to increased competition and changing consumer habits.

Reckitt Benckiser said the June cyber attack had disrupted its ability to manufacture and distribute products to customers in multiple markets, hitting its global supply chain.

"Consequently, we were unable to ship and invoice some orders to customers prior to the close of the quarter."

It said some of factories were still not operating normally, but that some of the revenue lost in the second quarter would be recovered in the current third quarter.

"However, the continued production difficulties in some factories mean that we also expect to lose some further revenue permanently," it said.

A company spokeswoman said she anticipated that all its factories would be running at some level by the end of the week.

"We expect an impact both on top line, through disruption to production, order handling and logistics, and margin, through the need to upgrade systems and recover data," Investec analysts said. (Editing by Jason Neely and David Clarke)